Question 1

The buyer of the business wants to minimize the cash up front and avoid enabling the seller to open a competing business.

Accepted Answer

A) True 
 B)False

Question 2

Hiring the previous owner as a consultant for the first few months can be a valuable investment.

Accepted Answer

A) True 
 B)False

Question 3

Traditional lenders of capital often shy away from deals involving the purchase of an existing business.

Accepted Answer

A) True 
 B)False

Question 4

The bargaining process may eventually lead both parties into the non-compete zone.

Accepted Answer

A) True 
 B)False

Question 5

The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.

Accepted Answer

A) True 
 B)False

Question 6

When it comes to transferring goodwill in a business valuation,goodwill:

Accepted Answer

A) is considered an intangible asset and therefore not taxed. 
B) can be used as a deduction by the seller. 
C) is taxed for the seller as capital gains. 
D) cannot be used as a deduction by the buyer because it is a capital asset. 
A) is considered an intangible asset and therefore not taxed. 
B) can be used as a deduction by the seller. 
C) is taxed for the seller as capital gains. 
D) cannot be used as a deduction by the buyer because it is a capital asset.

Question 7

One advantage of buying an existing business is:

Accepted Answer

A) you always get the best location. 
B) the opportunity to participate in a national advertising campaign. 
C) equipment is installed and production capacity is known. 
D) easy implementation of innovations and changes from past policies. 
A) you always get the best location. 
B) the opportunity to participate in a national advertising campaign. 
C) equipment is installed and production capacity is known. 
D) easy implementation of innovations and changes from past policies.

Question 8

There are three components in the rate of return used to value a business.The component(s)are:

Accepted Answer

A) risk-free return. 
B) an inflation premium. 
C) the risk allowance for investing in the particular business. 
D) All of the above 
A) risk-free return. 
B) an inflation premium. 
C) the risk allowance for investing in the particular business. 
D) All of the above

Question 9

The ________ is a firm commitment by both sides that they are ready to move toward closing the sale of the business.

Accepted Answer

A) due diligence process 
B) sale deed 
C) loan covenant 
D) letter of intent 
A) due diligence process 
B) sale deed 
C) loan covenant 
D) letter of intent

Question 10

For a new owner of an existing business,physical facilities and equipment costs are very similar to what would have been spent on a start-up with all new facilities and equipment.

Accepted Answer

A) True 
 B)False

Question 11

The ________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.

Accepted Answer

A) balance sheet 
B) capitalized earnings 
C) excess earnings 
D) discounted future earnings 
A) balance sheet 
B) capitalized earnings 
C) excess earnings 
D) discounted future earnings

Question 12

Under the capitalized earnings approach to business valuation,firms with lower risk factors are more valuable than those with higher risk factors.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following valuation methods does not consider the future income-earning potential of a business?

Accepted Answer

A) Balance sheet technique 
B) Excess-earnings method 
C) Discounted future earnings approach 
D) Market approach 
A) Balance sheet technique 
B) Excess-earnings method 
C) Discounted future earnings approach 
D) Market approach

Question 14

The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:

Accepted Answer

A) the rate of return reflecting the risk level. 
B) the prime interest rate. 
C) the normal rate of return. 
D) the prevailing rate of inflation. 
A) the rate of return reflecting the risk level. 
B) the prime interest rate. 
C) the normal rate of return. 
D) the prevailing rate of inflation.

Question 15

Part of a "self-audit" when buying a business is to ask yourself,"What do I expect to get out of the business" and "How much can I put into the business?"

Accepted Answer

A) True 
 B)False

Question 16

Briefly describe the advantages and disadvantages of buying an existing business.

Accepted Answer

The advantages of buying an exist

Question 17

The process of gathering information about the company,valuing the company,and performing a detailed review of all records,agreements,and compliance is called:

Accepted Answer

A) a letter of intent. 
B) nondisclosure. 
C) valuation. 
D) due diligence. 
A) a letter of intent. 
B) nondisclosure. 
C) valuation. 
D) due diligence.

Question 18

The most common reasons owners of small- and medium-sized businesses give for selling their businesses are:

Accepted Answer

A) need for money and low return on investment. 
B) boredom and burnout. 
C) low return on investment and burnout. 
D) poor location and low return on investment. 
A) need for money and low return on investment. 
B) boredom and burnout. 
C) low return on investment and burnout. 
D) poor location and low return on investment.

Question 19

When the buyer is examining the income statements,tax returns,and balance sheets of the business,he/she is seeking an answer to the basic question:

Accepted Answer

A) Is the business financially sound? 
B) Why does the owner want to sell? 
C) What is the physical condition of the business? 
D) What legal aspects should be considered? 
A) Is the business financially sound? 
B) Why does the owner want to sell? 
C) What is the physical condition of the business? 
D) What legal aspects should be considered?

Question 20

In an asset sale,the seller keeps all:

Accepted Answer

A) liabilities. 
B) cash. 
C) current assets. 
D) inventories. 
A) liabilities. 
B) cash. 
C) current assets. 
D) inventories.

Exam 7: Buying an Existing Business

The buyer of the business wants to minimize the cash up front and avoid enabling the seller to open a competing business.

Hiring the previous owner as a consultant for the first few months can be a valuable investment.

Traditional lenders of capital often shy away from deals involving the purchase of an existing business.

The bargaining process may eventually lead both parties into the non-compete zone.

The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.

When it comes to transferring goodwill in a business valuation,goodwill:

One advantage of buying an existing business is:

There are three components in the rate of return used to value a business.The component(s)are:

The ________ is a firm commitment by both sides that they are ready to move toward closing the sale of the business.

For a new owner of an existing business,physical facilities and equipment costs are very similar to what would have been spent on a start-up with all new facilities and equipment.

The ________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.

Under the capitalized earnings approach to business valuation,firms with lower risk factors are more valuable than those with higher risk factors.

Which of the following valuation methods does not consider the future income-earning potential of a business?

The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:

Part of a "self-audit" when buying a business is to ask yourself,"What do I expect to get out of the business" and "How much can I put into the business?"

Briefly describe the advantages and disadvantages of buying an existing business.

The process of gathering information about the company,valuing the company,and performing a detailed review of all records,agreements,and compliance is called:

The most common reasons owners of small- and medium-sized businesses give for selling their businesses are:

When the buyer is examining the income statements,tax returns,and balance sheets of the business,he/she is seeking an answer to the basic question:

In an asset sale,the seller keeps all:

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Choosing a Form of Ownership

Franchising and the Entrepreneur

New Business Planning Process: Feasibility Analysis,business Modeling,

Building a Bootstrap Marketing Plan

Creative Use of Advertising and Promotion

Pricing and Credit Strategies

Global Marketing Strategies

E-Commerce and Entrepreneurship

Creating a Solid Financial Plan

Managing Cash Flow

Sources of Equity Financing

Sources of Debt Financing

Location,layout,and Physical Facilities

Supply Chain Management

Managing Inventory

Staffing and Leading a Growing Company

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The Legal Environment: Business Law and Government Regulation

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